Unless you own a junior mining company that is loaded to the gills with gold and silver reserves and resources you are in trouble. The ore body better be an economic ore body that actually without a doubt (almost) can become a profitable mine. The stock should be so undervalued that even the insiders are buying.

Most hard money investors would be well served to use these rules:

• Sell any stock that is issuing warrants with their next financing and tell your broker why and have him call the company as well.
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• Never put more than 5% of your money in exploration stocks unless it is an advanced exploration play with plenty of prior drill success.
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• Look for developmental companies that are within a year from bringing on new production. This is my favorite area for our Fund and one that you should pay attention to.
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• Make sure that even with much lower metal prices (gold at $600) the company will still sell for less than 15 times after tax cash flow per share.
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• Always look for companies with giant deposits that have economic grades. Even if the company is small, a big deposit gets attention.
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• I hate to say good management because almost all companies can make it look like they have good management. But good people make things happen not rocks.

In the coming years one of the best sectors for investors will be the mining industry for reasons you already know about. Progress in China and India, paper money, derivatives, insane governments, debt, etc. all point towards much higher metal prices for perhaps a decade. Don't shortchange yourself. Stay with the companies that have the real goods in the ground.

For other articles on gold, mining and the economy visit our archives at www.kengerbino.com.

Apr 24, 2008
Ken Gerbino